Do as asked .. line up and wait. The landing pilot is hardly going to need to use the piece of runway you're about to occupy, so get into position and be ready to go. Invariably many "line up and waits" are converted to "clear for take off" as soon as you align on the centreline as the preceding a/c has just vacated. It's all about minimum runway occupancy if the airport is busy. Wait for the guy to vacate before you line up is just a waste of runway time.
Final decision always rests with the PIC, so if you're subsequently cleared for take off and the prior traffic has his tail stuck over the runway, refuse the clearance. Don't forget the controller in the tower probably has a better view, and certainly a "bigger picture" than you.